Canadians fined $100 million for unpaid real estate taxes

CRA says it has identified $1 billion in unpaid taxes since 2015

Canadians fined $100 million for unpaid real estate taxes
Steve Randall

Tax evasion and other unpaid tax relating to the real estate sector is a $1 billion issue according to new figures from the CRA.

Canada’s tax agency says its audits since 2015 have identified over $1 billion in additional gross taxes related to the real estate sector; and that’s just from two provinces.

Following reviews of more than 41,700 files in Ontario and British Columbia, the result of the CRA audits was $100 million in assessed penalties.

In 2018 alone, more than $171 million of additional real estate tax revenues were identified, up 65% from the previous year. That resulted in penalties more than doubling year-over-year to $57 million.

"The Government of Canada is committed to ensuring that Canadians benefit from a strong, stable housing sector. With Budget 2019's proposed multi-year funding for the CRA's work on the real estate sector, we will create a new Real Estate Tax Force and increase our efforts to combat non-compliance to better ensure tax rules in the real estate sector are followed by all Canadians,” said Diane Lebouthillier, Minister of National Revenue.

Flipping, sales tax
The unpaid taxes are from several main activities.

Flipping, while not illegal, generates taxable income which must be reported to the CRA.

And builders of new and substantially renovated residences or rental properties are required to collect and remit the Goods and Services Tax/Harmonized Sales Tax (GST/HST) to the CRA when they sell, rent out for the first time, or appropriate the property for personal use.

Additionally, builders and developers are required to provide the CRA with details of buyers involved in a pre-construction assignment sale.

Extra resources to tackle avoidance
The CRA is to be given additional resources to crack down on real estate tax avoidance and evasion.

Budget 2019 proposes to further increase compliance actions by providing $50 million over five years and $10 million ongoing to create a Real Estate Task Force that will focus initially on the Greater Toronto and Greater Vancouver areas.

The Task Force will have several key focuses:

  • Taxpayers report all sales of their principal residence on their tax returns;
  • Any capital gain derived from a real estate sale, where the principal residence tax exemption does not apply, is identified as taxable;
  • Money made on real estate flipping is reported as income;
  • Commissions earned are reported as taxable income; and
  • For Goods and Services Tax/Harmonized Sales Tax (GST/HST) purposes, builders of new residential properties remit the appropriate amount of tax to the CRA.